PPS Investments

Exclusive partnerships bode well for PPS Investments

PPS Investments was launched in 2007 when its parent company, the renowned mutual insurer PPS (established in 1941), perceived the need to innovate within the rapidly evolving insurance industry of the time by issuing new-generation savings and investment products free of the layers of fees associated with traditional offerings. Since then, agility, intelligence and innovation have underpinned the company’s steady growth to date, with 40 000 clients and R33-billion under assets – although there is scope for much more growth. As founding CEO Nick Battersby says, “We still consider ourselves to be a young business – PPS itself has over 200 000 members, so we’ve still got quite a long way to go to penetrate that membership base.”

Against this background, two ground-breaking initiatives stand out as being likely to provide a tremendous stimulus to the growth of PPS Investments: the newly developed Horizon digital advisory tool promises to take financial advisors to the top of their game, while the recently launched Partnership Fund Range offers investors an even greater variety of consistent and reliable returns than ever before.

Members first

At the core of both initiatives – as for all PPS products and services – is the principle of mutuality. “Whereas I would suggest that in many product provision businesses, the first question that’s asked of the product committee when a new idea is launched is about the expected return on investment, the first question that’s asked in the PPS world is whether this is a good product for our members,” comments Battersby.

“The second question is whether it’s cost-effective – as a mutual, as much as we share all the profits of our products and services with our members, we can’t afford to run a product for a small group of members which then ends up costing the other members as well,” he adds.

A hallmark of PPS products has always been that they are user-friendly – both for clients and the financial advisors who guide them on the path to financial wellness. “We’ve kept our product range simple and uncluttered rather than just proliferating more and more products, with the idea that as part of a mutual business, we always put the interests of our members first,” says Battersby.

“Moreover, we have evolved our proposition quite materially in the recent past to work very closely with the financial advisors servicing our members and we have spent a lot of time and effort understanding their needs in order to optimise the service they can provide.”

Reliable and consistent

Financial advisors can focus on their client’s broader financial needs when they don't have to worry about which portfolio should they be picking. Fortunately, the PPS Investments portfolio management structure has always emphasised consistency and reliability, so that advisors can focus their efforts on what the client actually needs.

“Our view has always been that we should be running portfolios that advisors and members can rely on,” explains Battersby. “A good solid financial plan will benchmark a client’s requirements for inflation-targeting return; from the very beginning, the core funds we launched targeted different levels of inflation-beating returns over different time periods. We’ve stayed focused resolutely on that objective over the past 11 years. If we say that a given portfolio is going to deliver X over a certain period, we are very focused on delivering that. We strive to consistently deliver on the promise on the label of the tin, as opposed to chasing peer rankings in any given period.

Optimising effectiveness

The principle of cost-effectiveness also applies to financial planners – especially in terms of the time and money they have to invest in their practice. As Battersby points out, the transition from traditional savings and investment products has removed a great many fees and costs from the equation. Whereas financial advisors used to earn upfront commission for selling recurring-premium savings products, they now earn negotiated advice fees thereby aligning interests for a long-term relationship as opposed to a transactional one. Consequently, advisors need to be invested with their clients for a long time to cover the costs of providing that advice. Naturally, PPS has developed a tool to make life under such conditions simpler.

“PPS Horizon is essentially a digital advice programme which we can customise for each of our advisors in the manner that they prefer to advise their clients. It isn’t economically viable for an advisor in Sandton to visit a client in the middle of the Karoo; however, the advisor can use the tools we provide, with his advice principles embedded in it, and direct the client onto Horizon, where client and advisor can jointly create the same engagement they would have if they were physically sitting in the office,” says Battersby.

“Not only are we going to help advisors standardise their advice process across the client base, we are also going to ensure that young clients who don’t have sufficient assets to necessarily justify face-to-face advice will now be advised and brought into the savings pool.”

Horizon has been piloted and tested over the past few months; a fully-fledged marketing campaign is set to ensue in December.

Introducing the PPS Partnership Fund Range

PPS Investments already has a stable of products with proven track records and consistent, reliable performance. However, the PPS Partnership Fund Range – which includes the PPS Defensive Fund, PPS Stable Growth Fund and PPS Managed Fund – represents a radical innovation. Hayley Brown, Executive of Business Development at PPS Investments, elaborates:

“The PPS Partnership Fund Range comprises single-managed funds, managed by boutique asset managers identified through utilising our in-depth research and stringent due diligence processes. These asset managers offer our PPS clients a bespoke range of expertly managed funds. We are able to partner with these managers through exclusive partnership asset management agreements. We believe that these managers will add great value through their proven investment philosophies, experience and expertise.”

The decision to partner with boutique fund managers on these funds was made because their agile approach to investing allows them to take advantage of market opportunities timeously, says Brown, adding, “This new Partnership Fund Range complements and augments the PPS Investments’ current multi-manager range, and offers investors a unique opportunity for added diversification.”

The names of the funds reflect their objectives as well as the investment style of their chosen managers. For example, the PPS Defensive Fund is managed by Errol Shear of Sasfin Asset Managers. Brown comments: “Shear has a real return mindset with the primary objective of capital protection. This has been demonstrated through a strategy that has not delivered negative returns over any rolling 12-month period since he first began managing low-equity strategies (including the global financial crisis in 2008).

“Shear applies a consistently cautious mindset, which has resulted in the avoidance of market pitfalls such as African Bank, Steinhoff and Resilient. With a process that incorporates macro factors such as interest rate and inflation cycles, economic and business cycles, Shear is a highly skilled manager with a long track record of achieving investment objectives of capital protection and real returns over specific periods.

“As a risk-conscious manager, he focuses more on protecting capital than fully participating on the upside. The core drivers that he believes are necessary to achieve sustainable compounding returns over the long term include implementing a low trading 'buy and hold' strategy, appropriate asset allocation, risk management and controlling costs.”

The investment style of Tantalum Capital’s Rob Oellermann and Melanie Stockigt, selected to manage the PPS Stable Growth Fund, is characterised by a patient, long-term approach with real capital growth at the core of every fund objective.

“They are benchmark agnostic with a focus on absolute returns in portfolio construction,” Brown explains. “They hold strong views and have the conviction to back them, with a generally longer holding period. One of the few boutique asset managers in South Africa with specialised equity and fixed income research capabilities underpinning all investment decisions, Oellermann and Stockigt bring vast experience, in-depth company knowledge and a strong focus on research. They have the ability to make informed investment decisions in the mid and small cap space while retaining a nimble edge to portfolio management.”

By contrast, the PPS Managed Fund, which is managed by Cy Jacobs and Evan Walker of 36ONE Asset Management, has a pronouncedly robust style. “Jacobs is performance focused and brings something different to the Multi Asset High Equity space through explicit growth bias and aggressive portfolio construction,” says Brown.

“His robust investment approach combines bottom-up fundamental analysis with a top-down macro analysis enhanced by his ability to respond quickly to changing markets by making changes to portfolios in a very short space of time. Well-established in the hedge fund, domestic equity and multi asset flexible category, Jacobs is poised to manage the PPS Managed Fund by drawing on a wealth of relevant experience and expertise.”

In terms of the relationship, PPS has complete oversight and performs all non-investment related functions, allowing the investment managers to focus purely on managing their funds. Brown is confident that the managers will perform as expected, largely thanks to the rigour with which PPS has already analysed their performance to date.

“Our PPS manager research methodology encompasses both a quantitative and qualitative research process,” she explains. “The quantitative research involves analysing the past performance of the manager within the environment in which such performance was achieved. Furthermore, understanding the environment is important to assess whether a manager performed as expected given that different investment styles are better suited to take advantage of opportunities at different times in the cycle. We expect these managers to perform in line with their objectives, different investment philosophies and styles, based on prevailing market conditions.”

As always with PPS, the ultimate intention of the funds is to maximise value for investors.

“We believe our investors should be able to have access to different investment styles for optimal diversification in their investment portfolios. As such, through these Partnership Funds we are giving investors an opportunity to further diversify their portfolios by combining their investment portfolios with a multi-manager and single-manager philosophy,” concludes Brown.

Budding prospects

With the impact of Horizon and the Partnership Funds soon to be felt on the market, there is a palpable sense of excitement about the future prospects of PPS Investments over and above its solid track record over the past 11 years.

“I think the business has made great strides, but the real interest is in the future,” agrees Battersby.

“If I look back to where we thought the business would be after its first decade, we’re probably at or ahead of where we wanted to be, but it’s what lies ahead that is most exciting. I see our PPS businesses growing significantly in terms of the array of products and services offered as well as the ability to attract new professionals. Sizing up the situation, there are 200 000 PPS members and 40 000 PPSI investors; providing we carry on working with our advisors and continue to offer great propositions, I believe that in 10 years’ time we should be sitting at 150 000 investors rather than 40 000,” he concludes.